Run On The Fund

AAA

DEFINITION of 'Run On The Fund'

A situation in which a hedge fund faces an increasing amount of redemptions, causing the fund managers to sell positions to meet the withdrawals. A run on the fund can happen for several reasons but is usually the result of poor performance from the hedge fund. If the run on the fund is large enough it could force the fund to close its operations after most investors have taken their money out of the fund.

INVESTOPEDIA EXPLAINS 'Run On The Fund'

A run on a fund starts out slowly but quickly increases as investors rush for the exit, as increasing redemptions are generally considered to be negative and no one wants to be around near the end of the run. The reason for this is that redemptions force a fund to sell out of positions to produce liquidity to meet the redemptions. This selling will often weigh on the performance of the fund as the fund is forced to sell at inopportune times leading to losses.

RELATED TERMS
  1. Hedge Fund

    An aggressively managed portfolio of investments that uses advanced ...
  2. Liquidity

    1. The degree to which an asset or security can be bought or ...
  3. Liquidity Risk

    The risk stemming from the lack of marketability of an investment ...
  4. Redemption

    The return of an investor's principal in a fixed income security, ...
  5. Redemption Suspension

    A provision on a hedge fund preventing the withdrawal from the ...
  6. Subprime Meltdown

    The sharp increase in high-risk mortgages that went into default ...
Related Articles
  1. A Brief History Of The Hedge Fund
    Options & Futures

    A Brief History Of The Hedge Fund

  2. Hedge Funds: Higher Returns Or Just ...
    Options & Futures

    Hedge Funds: Higher Returns Or Just ...

  3. Hedge Funds Hunt For Upside, Regardless ...
    Options & Futures

    Hedge Funds Hunt For Upside, Regardless ...

  4. Foreclosure Opens Doors For Real Estate ...
    Home & Auto

    Foreclosure Opens Doors For Real Estate ...

comments powered by Disqus
Hot Definitions
  1. Market Segmentation

    A marketing term referring to the aggregating of prospective buyers into groups (segments) that have common needs and will ...
  2. Effective Annual Interest Rate

    An investment's annual rate of interest when compounding occurs more often than once a year. Calculated as the following: ...
  3. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  4. Odious Debt

    Money borrowed by one country from another country and then misappropriated by national rulers. A nation's debt becomes odious ...
  5. Takeover

    A corporate action where an acquiring company makes a bid for an acquiree. If the target company is publicly traded, the ...
  6. Harvest Strategy

    A strategy in which investment in a particular line of business is reduced or eliminated because the revenue brought in by ...
Trading Center